Amazon is shuttering its food delivery service (AMZN)

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Amazon is discontinuing its Amazon Restaurant service in the US this month, GeekWire reports . This follows Amazon shutting down Amazon Restaurants in London this past November. The service was originally founded in 2015 to offer consumers delivery from nearby restaurants and grew to be available in over 20 markets prior to its upcoming demise.

Share of US Meal Delivery Sales

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Amazon Restaurants failed to become a top player in the US' food delivery industry.In April 2019, four companies were estimated to hold 93% of sales in the market, according to Second Measure. Grubhub led with a 32% share, followed by DoorDash at 29%, Uber Eats with 22%, and Postmates' 10%. Amazon Restaurants was one of the companies listed under "Other," which had just a 7% share.

The service may have struggled due to the competitiveness of the market, its exclusivity, and the industry's difficult delivery requirements.

The food delivery market is competitive, making it difficult for Amazon to break through.Grubhub has been around since 2004 and even relative newcomers DoorDash and Uber Eats beat Amazon Restaurants to the market, launching in 2013 and 2014 , respectively. So, while Amazon has immense resources at its disposal, it seems to have been unsuccessful at stealing away customers from existing players to bolster its market share.

Amazon Restaurants was only available to Prime members, capping its potential audience.While there are many Prime members, cutting nonmembers out likely made it harder for the service to build share big enough to compete with the likes of Grubhub and DoorDash.

On-demand local delivery is expensive, difficult to implement, and different from Amazon's established logistics expertise.To handle deliveries from restaurants, companies need to deploy workers to efficiently pick up orders from restaurants and bring them to specific customers' homes, making the exact routes and processes inconsistent and putting a focus on last-mile delivery. This can prove costly, and while Amazon's online delivery capabilities are strong, they largely center around deliveries from fulfillment centers, so that expertise may not have given it a helpful advantage in food delivery.

Amazon's recent investment in Deliveroo suggests that Amazon may be interested in returning to the market with a new offering.The e-tailer led a $575 million Series G funding round in the London-based food delivery service, which operates in 14 markets, though not currently the US.

Amazon could continue to invest in and partner with Deliveroo and bring it to the US in the hopes of finding greater success in the food delivery market by leveraging the service's experience with food delivery. Amazon could also find other ways to improve the service, like by offering it to all consumers and providing discounts for Prime subscribers, for example.

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